What’s in Store for the Rest of 2026?
Now that we’ve officially transitioned into the second quarter of 2026, investors may find it helpful to recap what went on during the first four months of the year and how it could shape what’s coming next.
The Iranian Conflict’s Impact on Energy
Last year ended on a strong note, but investors were soon met with new risks at the start of 2026. The escalating Iranian conflict introduced fresh uncertainty into the global economic outlook, creating a sharp surge in the energy markets.
While volatility generated by geopolitical events is often short-lived, the Iranian conflict appears to be more impactful than most. This is primarily due to Iran’s role in global energy markets and the Strait of Hormuz’s impact on the world’s oil supply.
Oil prices jumped during the first quarter of 2026 before settling into a volatile range. Markets are now weighing two possibilities: further escalation or a path toward diplomacy.
As a reminder, higher energy prices act like a tax on both consumers and businesses. They increase transportation and production costs while putting pressure on household budgets. This creates a more challenging environment for consumers and investors, just as inflation started improving.
How Q1 Compares to End-of-Year Expectations
At the start of the year, expectations were fairly positive. We anticipated steady economic growth, easing inflation, and a labor market that, while cooling, remained stable.
That outlook hasn’t completely changed, but the margin for error is now smaller.
The Federal Reserve has kept interest rates steady for now as they balance two risks: inflation that could stay higher for longer and signs that the economy may be slowing. Employment is still strong by historical standards, but there is growing concern that outside events could weaken hiring or consumer spending.
Markets Performance in Q1
After several strong years, U.S. stocks pulled back and experienced more day-to-day volatility. At the same time, market leadership started to broaden. Energy and other inflation-sensitive sectors performed well, while areas that had led the market (large technology companies, for example) showed mixed results.
Bond markets were more stable, but rising inflation expectations appeared to push out the timeline for potential interest rate cuts. Even so, today’s higher yields continue to offer a more attractive starting point for bonds than we’ve seen in much of the past decade.
Despite the conflict and the risk of disruption in a critical global shipping route, we haven’t seen the kind of widespread market interruption that usually comes with a major economic shock. Overall, the markets have held up well in the face of volatility and global uncertainty.
Throughout April, the markets appeared to recover fully from temporary downturns, with several major indices sitting near all-time highs. Areas that tend to fall behind, including small-cap and international equities, have gained traction and outperformed so far in 2026—a good sign that we’ll see a more balanced market environment going forward.
Moving Forward, All Eyes on AI
After years of strong stock performance, valuations remain above long-term averages. Returns going forward are likely to be more moderate and more dependent on company earnings growth rather than rising valuations alone.
We’re still in the early stages of Artificial Intelligence (AI) integration across industries, but investment in AI continues at a rapid pace. It’s likely AI will be a key driver of earnings growth moving forward. Like past technological shifts, the long-term impact is expected to be positive. AI could improve productivity, increase efficiency, and lower costs, which may help companies maintain strong profit margins.
AI may also help offset long-term challenges for companies, including labor shortages and aging populations. Combined with stable or lower interest rates, these improvements could support higher market valuations over time.
That said, rapid technological advancements can come with tradeoffs. As of now, there are legitimate questions regarding how quickly AI may disrupt certain jobs and how well society will adapt to changes. These considerations will play out gradually over time, but from an investment standpoint, the focus remains on companies and sectors that may best benefit from the transition.
What’s Impacting Markets for the Rest of 2026?
Aside from AI, oil prices and movement with the Iran conflict will be important for investors. If tensions ease and energy prices stabilize, the economy may be able to absorb the shock and minimize lasting damage. But if the conflict persists, we could see additional pressure put on economic growth and inflation.
As Always, Diversification and Discipline Matter
Despite the first quarter creating some uncomfortable moments of volatility, it’s important to remember that this is a fairly familiar pattern for investors—relative uncertainty, geopolitical curveballs, and more tests of the market’s resilience.
As conditions change and investors process new information about world events, the markets move in response.
Prepare Your Portfolio for the Rest of 2026 and Beyond
While market reviews and commentaries are helpful, our focus remains on long-term planning, thoughtful portfolio construction, and tax-aware investment strategies. As new events unfold, we’ll continue monitoring the developments discussed above closely, making adjustments to our clients’ portfolios where necessary.
If you’d like to learn more about how we help our clients remain clearheaded and in control during big market changes, we invite you to reach out anytime. We’d be happy to review your portfolio and build a plan together.